The Spirit of Kentucky: Bourbon is having a renaissance, and the Bluegrass is at its roots

"You have just landed on the soil of the home of bourbon, America's native spirit," Bill Newlands, North American president of Beam Inc., told international spirits experts at the World Whiskies Conference.

For the first time, the annual global business summit, a gathering of the world's movers and shakers in the brown-liquor trade, was held in New York — not London, not Scotland. What's more, the star attraction had the distinct oaky flavor of Kentucky.

Welcome to the Big Bourbon Nation.

The experts came to celebrate the achievements of two Kentucky legends — Jimmy Russell of Wild Turkey and Jim Rutledge of Four Roses, who were inducted into Whisky Magazine's Icons of Whisky Hall of Fame.

They came to dissect the recent success of American whiskey.

And they came to taste the competition.

The night before the conference, hundreds of enthusiasts gathered to sample more than 300 whiskies — from Indian single-malt to Irish whiskey finished in bourbon barrels, and every permutation in between.

Side by side with the peaty Laphroiag scotch, the sophisticated Johnny Walker and the quirky That Boutique-y Whiskey Co. were Kentucky wares: There was Russell pouring samples of his latest Russell's Reserve Single Barrel bourbon; Evan Williams' representatives extolling the virtues of its new Larceny bourbon; and Jim Beam's mustachioed ambassador beside a whole bar devoted to mixing Maker's Mark cocktails.

Bourbon was the belle of the ball, and by the end of the night, even the guys in kilts were paying attention.

The reason is clear: American whiskey is winning the world over. Formerly fuddy-duddy brown spirits are starting to look as white-hot as vodka.

'Bourbon boom is real'

In 2012, for the first time in recent memory, whiskey sales increased faster than those of vodka, gin, tequila and other spirits. According to the Distilled Spirits Council of the United States, the alcohol industry trade group, last year's 3.6 percent growth in sales of U.S. whiskey was the biggest increase in 30 years. Revenues are climbing even faster — up 6.7 percent in 2012 to $6.4 billion — thanks to the strong sales of high-end and super-premium products, which now account for 80 percent of the gain.

Much of that momentum came from bourbon, which surged 11.9 percent last year, the second year in a row for double-digit gains.

"The bourbon boom is real," Newlands said in New York. "Today, bourbon is the fastest growing category in this country. ... When did you think you would hear that comment? ... It's now the No. 3 category within this country, and before this year is over, it will be the second-largest category in our industry in this country."

"We're the largest bourbon in the world, the second-largest American whiskey, largest individual spirit in Australia, largest American whiskey in Germany," he said. "Jim Beam alone did over 7 million cases worldwide last year."

The boom has been building for a long time: For the past decade, revenues of bourbon and its cousin, Tennessee whiskey, have soared, up 28.3 percent since 2003, to more than $2.2 billion last year.

Much of the growth came in Kentucky, where 95 percent of all bourbon is made, and Tennessee, home of Jack Daniel's, a variation on bourbon.

Then Newlands posed a question: "How big can bourbon be?"

His answer: huge.

"I'm here to tell you today I think this could be the next massive spirit category worldwide for our business," he said. "We believe it, and we think the consumer believes it, too."

Millions and millions

Kentucky's bourbon distilleries are banking on it; they (and the state) are investing more than $300 million to capitalize on that growth.

■ Beam put $30 million into the Jim Beam Stillhouse, a tourist center that opened last fall in Clermont, and in the Beam Global Innovation Center, pooling all the company's research and development in Bullitt County, with an additional $1.7 million investment to build and retrofit the company's new Global Business Services Center in downtown Louisville.

■ Maker's Mark spent $50 million to increase distilling and warehouse capacity and upgrade its visitors' center in Loretto and is spending an additional $8.23 million for a new extraction process and 50,000-barrel warehouse.

■ Heaven Hill, which owns Evan Williams, the second-biggest-selling bourbon, is investing $25.4 million in more fermenters at its Louisville distillery, in new warehouses in Bardstown, and in the Evan Williams Bourbon Experience tourist center in Louisville.

■ The Italian company Gruppo Campari has invested more than $100 million in Wild Turkey since buying the Lawrenceburg-based brand four years ago, including $40 million for a new bottling plant that begins operating in June (and will also bottle Skyy vodka) and $4 million for a new visitors center in Anderson County that is expected to open later this year.

■ Four Roses, also in Lawrenceburg, spent $2.5 million on new offices and renovations to an expanded visitors' center.

■ Alltech built a $10 million distillery and visitors' center in Lexington to tap into the Kentucky Bourbon Trail tourism program.

■ Buffalo Trace in recent years spent $30 million expanding distillery capacity and improving the distillery grounds and visitor experience in Frankfort; $5 million more in improvements, including an "experimental warehouse," are planned or under way. At sister distillery Barton 1792 in Bardstown, their Louisiana parent company Sazerac has spent $15 million with plans for an additional $10 million.

■ Craft distillers including Michter's, Willett, Old Pogue, Corsair, Limestone Branch and others collectively have made multimillion-dollar investments, with more on the way. Angel's Envy in late May received economic incentives for a proposed $10 million microdistillery in Louisville.

At the rate Kentucky distilleries are turning out bourbon, they will need the capacity. Last year, they filled a million barrels for the first time since 1973. They are likely to fill at least that many this year. Old warehouses that haven't been used for storage in years are filled to capacity again, distillers say.

It's all an attempt to keep up with growing demand.

Jimmy Russell, Wild Turkey's master distiller, has seen it all in his nearly 60 years in the business.

"We used to do 70 to 80 barrels a day. It's 560 barrels a day now," Russell said. Wild Turkey has more than 500,000 barrels in storage and expects to have another 50,000-barrel rickhouse ready by October.

"We're planning on the future. We're not making something to sell tomorrow. We're making bourbon for six or seven years down the road," Russell said. "And I'm hoping I'm around to sell it."

Bourbon sales this year are forecast to rise 3.1 percent and again outpace total distilled spirit sales, he said.

But that could be a drop in the bucket compared to expectations. Kass is fond of paraphrasing his boss, Heaven Hill owner Max Shapira, to the effect that 99 percent of the whiskey-sipping world drinks scotch, so if only 1 percent switch to bourbon, the market has doubled.

The thing that makes bourbon great — aging in charred oak barrels — is the same thing that makes it much more vulnerable to market fluctuations than vodka and gin, which can be bottled the day they are made. Bourbon makers must gauge where the market is likely to be four or five or seven or 12 years down the road and bet with their barrels: Sell now when the market is hot or wait a few more years, pay more taxes, and hope to hit it really big.

Maker's Mark, a Beam brand, had a highly public marketing stumble this spring, when it announced it would slightly reduce the proof in its bottles so the company would have more to sell, essentially watering down the product. But within a week, the backlash from customers convinced the company to abandon the plan. It turns out, fans would rather not find their favorite brand than buy what they perceive to be a lesser version.

Now Maker's is planning to build an $8.23 million facility with undisclosed new technology to recover more bourbon from the barrels.

Perhaps to head off similar complaints, Buffalo Trace has already warned of likely shortages of popular brands and is hiring someone to better balance supply with demand.

Kentucky distillers are looking to the East and Asia's emerging markets: Affluent Indians and Chinese want the real thing, and they want the good stuff.

"All of these projections are based on exports, primarily to Asia — to India and China," said Chuck Cowdery, author of Bourbon Straight: The Uncut and Unfiltered Story of American Whiskey and a member of the Kentucky Bourbon Hall of Fame. "If India and China develop like the prognosticators think they will, nobody will have made enough."

Quest for authenticity

How did this happen? How did bourbon, once one of the most moribund of drinks, become hip again?

The recent explosion is due to the renewed enthusiasm for cocktails. Many in the industry refer to the "Mad Men effect." On AMC TV's booze-soaked 1960s-set period drama, Don Draper and pals knock back more than their fair share of old-fashioneds and Manhattans, encouraging a renewed enthusiasm for whiskey of all varieties, including bourbon and rye, which had been relegated to the liquor dustbin decades ago.

Last year, 46 new bourbons and three flavored whiskies were introduced, according to the Distilled Spirits Council.

Cocktail culture had been blooming for years before Mad Men, helped along by sustainable agriculture, the "locavore" and foodie culinary movements, the return to the raw, the unprocessed, the unusual.

A hallmark of all of these is consumer desire for "authenticity," and nobody has jumped on that bandwagon in a bigger way than bourbon.

Which is ironic considering that what doomed bourbon 50 years ago was its Establishment image.

Birth of premium brands

In the late '60s, bourbon became "the old man's drink." Younger generations were into vodka, tequila, rum, wine and less-than-legal intoxicants.

"It had been a fairly difficult row to hoe until really the mid-1980s, when the first premium products became available," Kass said. "Interestingly enough, those were only available to international markets. The first single-barrel bourbon was only available in Japan. But people wanted it here, so it came back here."

Why Japan? Because of the same phenomenon that once hurt bourbon here: a new generation of drinkers, in Japan's case turned off by scotch.

According to Chris Morris, master distiller for Woodford Reserve, Louisville-based Brown-Forman's premium bourbon brand, Japanese naval officers got a taste for scotch during and after World War I. Bourbon began to get a toe-hold after World War II, during the American occupation of Japan.

Then, in the 1980s, young Japanese rebelled against their parents' preference for scotch. They were used to seeing premium "single-malts" and went looking for a premium drink of their own: They found it in Blanton's, the first single-barrel bourbon, introduced in 1984 by The Leestown Company (now Buffalo Trace Distillery).

"Since the late 1960s, the bourbon industry was sliding 3 to 5 percent each year," said Jim Rutledge of Four Roses. "The introduction of premium brands — the single-barrel, the small-batch — lifted the industry up by our bootstraps."

Blanton's was patterned on the time-honored practice of master distillers bottling a few favorite barrels for friends. Now everybody wants to be the master distillers' best friend.

Wild Turkey's Jimmy Russell and Buffalo Trace's Elmer T. Lee have done multiple tours of Japan, where they are treated like rock stars. "We'll sit and sign bottles for two or three hours," Russell said.

It isn't that much different in the United States these days. In New York, fans were taking photos with Russell and asking for his autograph on napkins.

The resurgence "was a long time coming," Cowdery said.

"It had been so bad for so long. They'd pretty much written bourbon off, given up on it. Then, it started, without anybody trying to make it popular, in Japan first and then in other countries. Suddenly in the 1980s, there was a big clamoring for bourbon. They were used to 12- to 18-year-old scotch. They said, 'You got any old bourbons?'"

As it happened, yes.

Bourbon isn't generally aged all that long but because sales had been so bad, nobody was in a big hurry to put it in bottles. So a considerable amount of old bourbon was sitting in Kentucky warehouses. That began to make it to market.

"First Blanton's, then Beam started Booker's," Cowdery said, of Beam's collection of small-batch specialty bourbons released in 1992 to acclaim at home and abroad.

"Japan was the shining spot for international bourbon," Morris said. "The Japanese just went crazy for it."

Back home, bourbon sellers began to offer tastings and culinary events, patterned on the way wineries built their followings. Bourbon fans wanted to taste what the Japanese were getting.

The cult of premium bourbon was born.

Opening the market

"Premiumization" isn't the only thing fueling the success. Brand extensions such as flavored whiskies, ready-to-drink versions of cocktails and other innovations have brought in new customers, including younger drinkers and women.

To many bourbon purists, the flavored versions are anathema. But to bourbon executives, they are nectar. Take Jim Beam: According to Bill Newlands, the company expects 25 percent of its growth to come annually from "innovations."

So far, Beam has beat that expectation, he said, with products including Red Stag, a bourbon-based drink that comes in cherry-, honey- or cinnamon-flavored versions.

"Red Stag has been the top bourbon innovation in the last 10 years," Newlands said. "This product has sold over a million cases and over $100 million since its inception.

"It has attracted new consumers to bourbon, who historically had not consumed bourbon.

"Where 80 percent of bourbon historically has been male, Red Stag has been roughly a 50-50 split between men and women. It has brought many, many new people to the bourbon and whiskey categories."

"It was a crap shoot going in, but it's paid off," said Fred Booker Noe III, Beam's master distiller. "It's a whole different category. Lots of times people see bourbon as a shot and a beer, as cowboys bellying up to the bar. But it is very versatile. You get purists who think it's a sacrilege. You see it with scotch: Some people are anti-ice. But by being closed-minded, you limit who's going to buy your product. Only so many people are going to like it that way."

Noe's philosophy: "Drink it any damn way you want to. Mom drank it with ginger ale."

ABOUT THIS SERIES

This is the first in a four-part series, The Spirit of Kentucky, looking at the state's bourbon industry.

Through the remainder of 2013, about once every other month, the Herald-Leader will explore a different facet of one of Kentucky's most well-known, important and fastest-growing industries.

Future installments will delve into the marketing and selling of bourbon, the lifestyle that has sprung up around the drink, and the industry's future. Also look for occasional features in print and online exploring the drink.

1 of 2

Never miss a local story.

Sign up today for a free 30 day free trial of unlimited digital access.